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Like most of us in the sustainability field, I’ve come to anticipate the publication of CEO of Blackrock Larry Fink’s annual letter. Over the past several years, Fink’s missive (and its downstream impact on Blackrock’s growing emphasis on ESG) has revolved around responsible business and the role of the investor to encourage corporate responsibility.
2022 was no different. Fink’s letter (here, if you haven’t read it yet) continued to emphasize the importance of environmental and social issues in corporate governance. But this year, Fink deviated slightly from his previous years’ message by reinforcing the importance of capitalism.
Those who know me know I’m a dyed-in-the-wool capitalist. I believe, strongly, that the straightest and most efficient path towards innovation, growth, resource allocation, and yes, profits, is through the free market. Competitive pressure has shaped our human culture for thousands of years, and capitalism continues shaping it today. Without capitalism, many of the things we have and use and the quality of life we take for granted today may have never become a reality.
As the emphasis on corporate responsibility has grown over the past decade, however, it has been called into question whether capitalism is sustainable and resilient as an economic system. At the heart of the matter is the so-called Friedman doctrine, Nobel Prize winning economist Milton Friedman’s theory that the social responsibility of a business is to increase its profits. Commonly, the soundness of the Friedman doctrine is pitted against another economic theory, the tragedy of the commons, in which individual pursuit of personal gain comes at the detriment of society.
Part of what is at issue is the matter of economic growth. A common understanding in sustainability is that infinite economic growth (as supported by capitalist doctrine) is at odds with a planet of finite resources. We already consume nearly 1.5 Earth’s worth of resources every year, far overshooting our available natural resources. If anything, we must scale back this consumption to operate within our planetary boundaries.
But can we do that and remain capitalists? Is capitalism sustainable?
On this point, Larry Fink and I resoundingly agree. The answer is yes. In fact, Fink argues, capitalism is a road to sustainability, but it will require the reimagining of how we do business and generate profits today.
The only way we can maintain infinite growth with finite resources is through innovation, and through circular innovation specifically. Stewardship of our natural resources is becoming a form of significant capital, and that capital is increasingly at risk. It is, therefore, the fiduciary responsibility of all leaders to protect natural resources to de-risk business.
“We focus on sustainability not because we are environmentalists, but because we are capitalists and fiduciaries to our clients.” – Larry Fink
This, Fink concludes, means decarbonizing. One of the greatest risks to our collective natural resources (including people) is climate change. The faster we can decarbonize, the more rapidly we reduce this risk.
But it doesn’t stop there; we must also innovate, knowing that how we do business today will not survive a resource-constrained and risk-laden future. The business models that served us 100, or even 50, years ago must be overhauled. We must ascribe value to concepts and ideas that we may have devalued in the past. We must invest, heavily, in the development of digital solutions and services that advance our very human aims of survival while simultaneously supporting our economic ambitions of growth.
Through this lens, I’d argue that capitalism is sustainable. It is the competitive market pressures of the next decade that will help us to succeed through the efficient allocation of scarce resources. In fact, in an April 2022 report, BlackRock noted that it expects 75% of its corporate investments to have net-zero goals by 2030. It is the spirit of exploration and the promise of potential profit that will drive some of our most talented entrepreneurs and inventors, and it is the work of those individuals that will create new, resilient, sustainable, and circular business models that will allow us to drive profitability and growth in the face of finite resources.
Fink challenges all of us, as business leaders, to answer a fundamental question this year: will we lead in this brave new world of sustainable capitalism – or will we follow? I know my position in this pecking order – do you?
At Schneider Electric, we embrace the promise of a sustainable and profitable future in all facets of what we do. Our purpose, to empower all to make the most of our energy and resources, drives us to create impact through innovation and our people. We do this both within our own business and for our customers. Our Sustainability Business consults and partners with some of the largest organizations around the world to decarbonize their operations and supply chains, embrace the opportunity of sustainability, and deliver better results for all stakeholders, shareholders, and communities. We invite you to drop us a line to learn how we help companies at all stages of the sustainability journey pair ambition with action and drive real, impactful results.
